1. Surety Bonds Managing the Risk of Contractor Default

2. What Is Surety Bonding? Surety ObligeePrincipal

3. Types of Contract Surety Bonds Bid Bond Performance Bond Payment Bond

4. Types of Contract Surety Bonds Bid Bond Performance Bond Payment Bond

5. Types of Contract Surety Bonds Bid Bond Performance Bond Payment Bond

6. How Surety Bonds Work Protect owner against contractor failure Protect subcontractors, laborers, & suppliers against nonpayment

7. Role of the Producer Prepare case for surety underwriting Preparation for prequalification Relationship between contractor & surety company Keep & increase surety capacity Producer

8. Seeing Projects To Completion

9. Contractor Default Source: Dun & Bradstreet

10. Surety’s Areas of Expertise Prequalification Claims Handling

11. Capacity Financial Strength Company History Organization Continuation Plans References Projects in progress Prequalification

12. Surety Company’s Checklist Good character Experience matching contract requirements Financial strength Excellent credit history Established banking relationship Line of credit Necessary equipment

13. Benefits Of Surety Bonds Financial Security Construction Assurance

14. Benefits Of Performance Bonds Increase likelihood of timely project completion Assure compliance with contract Surety may resolve contractor problems Fulfills contractural obligations if contractor defaults Performance Bond

15. Benefits Of Payment Bonds Protect certain subcontractors, suppliers, & laborers from non-payment Eliminates mechanics’ liens Competitive pricing No cost when purchased with performance bond Payment Bond

16. Cost of Surety Bonds Project Amount Approx. Bond Premium $1 Million$7,700 – $13,500 $5 Million$33,200 – $47,250 $10 Million$56,950 – $81,000 $20 Million$101,950 – $146,000 * Premiums may vary depending on size, type & contractors bonding capacity.

17. Responding to claims is the fulfillment of the surety’s promise made in its bond

18. Reasons For Contractor Failure Accounting Problems Change in Leadership Scope of Business Material/ Equipment Shortages Unrealistic Growth Failure Labor Difficulties

19. Protection Provide trained personnel Provide payment to subs & suppliers Offer financial assistance to contractor Surety

20. Claims Investigation Review Options Resolution Completion Declaration Of Default Steps in the Claims Process

21. Claims Investigation Review Options Resolution Completion Declaration Of Default Steps in the Claims Process

22. Claims Investigation Review Options Resolution Completion Declaration Of Default Steps in the Claims Process

23. Actions of a Surety Re-bid job for completion Arrange for replacement contractor Retain original contractor Pay the penal sum of the bond Surety

24. Case in Point “Surety Involvement Saves Projects”

25. The Facts Old line family-owned contracting company Company sold to 5 key employees 16 projects in progress $20 million school with cost overruns & schedule delays

26. The Problems Default on 3 senior citizen homes & 1 low income community rehab center Delays would hinder substantial HUD financing and tax credits

27. What Happened Contractor over- extended Re-work slowed schedule Key subs not bonded

28. The Surety’s Solution Hired a replacement contractor with experience on HUD projects Assembled team to handle HUD, federal, & state requirements Retained and paid subcontractors, laborers & suppliers Financial help with schools

29. The Outcome Paperwork not delayed Work completed on time No loss of tax credits or financing Occupied in time to satisfy HUD deadlines

30. The Outcome Surety protected school district and taxpayers from $1,865,753 loss Premium paid for bonds: $129,290

31. The Goal Is Project Completion

32. For More Information Surety Information Office 1828 L St. NW, Suite 720 Washington, DC 20036 202-686-7463 | Fax 202-686-3656 www.sio.org | sio@sio.org